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Analysts at TD Securities suggest that while there is little doubt that the Monetary Council (MC) of Hungary will keep rates on hold at today’s meeting, market expectations for tighter policy have been rising given that core CPI inflation ex indirect tax effects moved up to 3.0% Y/Y in January.

Key Quotes

“Deputy Governor Nagy has previously said that core at 3.0% or higher would be a strong signal for the start of policy normalization, which would be launched even if headline CPI inflation (2.7% Y/Y in January) is below the 3% target. However, we are not expecting the MC to take any concrete measures towards policy normalisation until the March meeting.”

“Then the MC would have the latest Inflation Report to hand and the regular quarterly review of liquidity measures would be due. The MC is likely to first start policy normalisation by cutting back on some of the liquidity provided by FX swaps and only later on by actually moving the rate corridor, currently -0.15%/0.9%, higher.”